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Swiss tax dodging deal falls in German upper house

Opposition parties in Germany's upper house of parliament have blocked a proposed bilateral tax deal between Germany and Switzerland. Chancellor Angela Merkel's government may call in parliamentary arbitrators.

The bilateral deal with Switzerland had won ministerial approval and cleared Germany's lower house of parliament, the Bundestag, but it was blocked on Friday in the upper house, the Bundesrat, where Germany's 16 regional state governments are represented.

Opposition to the tax proposal came from opposition Social Democratic Party (SPD) and the Greens, who form coalition governments in several of Germany's key states, including the most populous, North Rhine-Westphalia, and Baden-Wuerttemburg.

In reaction, German Finance Minister Wolfgang Schäuble who had advocated the deal, said he planned next Wednesday to submit the bill to a committee which arbitrates between the two chambers.

The Swiss and German federal governments had wanted the tax deal. Berlin had aimed to recover a portion of monies deposited by Germans in the neighboring tax haven. Assets deposited over the past 10 years would have been subject to tax levels of between 21 and 41 percent. In exchange, those who paid up would not have had their identities revealed to the relevant German authorities.

And, future earnings deposited in Switzerland would have been subject to similar rates for capital holdings in Germany - roughly 26 percent.

Switzerland said immediately after the vote that it was still prepared to move ahead if a domestic deal could be done in Germany.

"Switzerland is prepared, as before, to lead the ratification process to a successful conclusion," Finance Minister Eveline Widmer-Schlumpf said on Friday. The rules were due to come into force on January 1, 2013.

The Social Democrats and Greens had opposed the deal for months, with SDP leader Sigmar Gabriel saying earlier in the year that it "legalizes tax evasion and grants tax dodgers so much time to send their money elsewhere, that it is ultimately ineffective."

The opposition-led regional state governments, noteably North Rhine-Westphalia, purchased several CDs containing black-market data on suspected tax evaders using Swiss banks, moves that came under fire from Switzerland and from Chancellor Merkel's government.

Prior to the Bundesrat vote on Friday, Hermann Gröhe of Merkel's Christian Democrats said that the opposition was using a policy of "total refusal" on the tax evasion issue, warning against a "months-long campaign" - an apparent allusion to next year's federal elections.

Gröhe also said that shooting down the deal would cost German states billions, "which they might have used to set up more pre-kindergarten places." He was referring to another internal area of policy discussion where the government and the main opposition parties are at loggerheads in parliament.